Success lies in the ability of firms to combine these factors either in a single country or across several markets.
For example, Niklas Zennstrom and Janus Friis left their native Sweden and Denmark respectively for low-cost, talent-rich Estonia to create Skype. Thus, the two Scandinavians’ creative-destructive thinking was combined with Estonia’s low-cost, enterprise-friendly environment.
The Swedish founders of SoundCloud, Alexander Ljung and Eric Wahlforss, decided that they were better off in relatively cheap Berlin, at the heart of Europe’s underground music scene. Similarly, Samih Toukan and Hussam Khoury, who created Maktoob (now owned by Yahoo), were able to combine the comparative advantage of Jordan’s creative talent and low costs with the quality and convenience of Dubai’s infrastructure and business networks.
Sometimes, the overwhelming benefits of one or more factors are decisive. The caliber of Finland’s infrastructure, workforce and domestic networks overrode the concerns of Rovio’s Finnish founders about their country’s high costs and inconvenient location, so they decided to start their new business at home.
However, increasingly, innovative startups operating in a mobile, globalized world will find that they can circumvent constraints in one location by shifting some or all of their assets or operations to another.
The challenge for governments is to improve those less mobile factors of innovation — cost, caliber, and convenience — in order to attract, retain and encourage free-flowing capital and the most creative citizens.
Sami Mahroum is academic director of innovation and policy at INSEAD.
Copyright: Project Syndicate